OB. xix REPAKATIONS AND THE TEEMS OP TRADE 183
Germans the marginal utility of American goods is unchanged
while the marginal utility of German goods is increased. For
equilibrium, therefore, the total sendings of German goods
must be cut down below what they would have been had there
been no reparations. This can only be done if the terms of
interchange are moved in Germany's favour.
Fourthly, our formula shows that if the elasticity of the
marginal utility of American goods to Germans, Gc, is infinite
and none of the other elasticities are infinite, the real ratio
of interchange must be turned in favour of Germany. For
the marginal utility of American goods to Germans is not
increased at all when fewer of them are obtained. Conse-
quently, if the original terms of interchange are maintained,
Germans will continue to export the original quantity of
German goods, bringing back such reduced quantity of Ameri-
can goods as can be purchased with the surplus of German
goods above what are required to buy reparation receipts.
But in these circumstances Americans are obtaining the
original quantity of German goods while surrendering fewer
American goods. Therefore to Americans the marginal utility
of German goods is unchanged while the marginal utility of
American goods is diminished. For equilibrium, therefore, the
sendings of American goods must be increased above what
they would have been in these circumstances. This can only
be done if the terms of interchange are moved in Germany's
favour.
§ 14. On the basis of the foregoing abstract analysis we
have next to inquire what sort of situation we may normally
look to be confronted with in actual life. A vital considera-
tion is as follows. Whereas the marginal disutility to anybody
of surrendering so much of anything is necessarily equal to
the marginal utility to him of the quantity he retains, so
that in respect of given quantities we may speak indifferently
of the marginal desire for (or, more accurately, for using) the
commodity and the marginal aversion from surrendering it,
the elasticities of marginal utilities and disutilities are not
equivalent. Thus suppose that a representative American is
parting with riK units of cloth and retaining n(A -X) units.
Call the former of the two above elasticities Ec— as before •—
and the latter Pc. Let the utility derived from retaining the
n(A. - X)** unit, which is necessarily equal to the disutility